From the Strait of Hormuz to the Port of Philadelphia – It’s All One World

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Two attacks on oil tankers in the Strait of Hormuz have set the energy world, and the world at large, on edge. It also shows the folly of the unilateral energy disarmament being practiced on the West Coast and in New England, in the United States.

The Strait is the narrow channel between Iran and the Arab Gulf state of Oman through which 30% of the world’s exported oil flows. As happened during the 1980’s Iran-Iraq war, attacks on oil tankers are used as a political weapon to disrupt the world economy.

The first attack came on the Japanese-owned Kokuka Courageous. It was followed by an attack on the Norwegian-owned Front Altair. Both attacks happened near the Iranian naval base at Jask, both ships sent distress signals, and both crews had to be evacuated.  Iran responded with conflicting accounts. It first said that it had rescued all of the crew of the Kokuka when it had not. Then it claimed that they, the Iranians, are responsible for security in the Strait.

The Trump Administration blamed the Iranians – who denied responsibility – and confusion reigned about whether torpedoes, mines or “flying objects” were responsible for the destruction. In response, the price of oil rose sharply and the Norwegian insurance company DNK, which insured the Front Altair, raised its threat assessment while saying Iran likely is to blame.

Reports since have been measured, with most nations believing Iran is responsible while others urging caution. While this shakes out, however, one name looms large and should be remembered by all – Qasem Soleimani – the Commander of the Iranian Revolutionary Guard Corps..

Soleimani, often considered the mastermind of Iranian military expansionism, has been the key figure in exporting Iranian power overseas. He is behind the drive to surround Israel with a “Ring of Fire” and to challenge Saudi Arabia for control over the Arabian Peninsula.

With Iran’s economy reeling from the Trump Administration’s sanctions, it likely was only a matter of time before Iran sent Soleimani into action. Last week, Iranian backed Houthi Rebels in Yemen fired a missile at the Saudi airport in Abha, wounding 26 and constituting a direct challenge to international aviation. Hamas operatives continued to lob fire balloons and rockets into Israel, bringing that area to the precipice of another military conflagration. Now the ship attacks.

If Iran is responsible, it is because the Mullahs are scared. Demonstrations broke out last year in many Iranian cities, showing the depth of antipathy toward theocratic rule. Unlike Venezuela, where the country’s wealth is being squandered by an incompetent kleptocracy, much of Iran’s natural treasure is being diverted from the people to finance military conflicts about which the average Iranian cares little.

Still, it would be foolish to imagine the regime is in immediate danger. The more likely scenario is a drawn out war of attrition with the potential of violent conflict erupting and spreading throughout the entire Middle East at any time. Under this world situation, the price and availability of energy becomes a weapon and will be even more volatile.

Meanwhile, in the Marcellus region back home, the Delaware River Basin Commission last week approved an LNG export terminal in Gibbstown, New Jersey, across the river from Philadelphia.  In addition, the Philadelphia City Council approved an LNG terminal on abandoned property in South Philadelphia. Neither the DRBC nor the Philadelphia City Council has been friendly toward the gas industry, but both seem to realize the importance of these actions both to the region and to the world at large.

From a geopolitical standpoint, the “keep it in the ground” movement makes this country less secure. Whether it makes the world more secure depends on what the alternatives are.  Until that is clearly shown, we run the risk of making our country more dependent on foreign energy sources at a time of extreme international volatility.  Before we do so, we all should understand the stakes. The issues are decidedly more complex and geopolitical than the locally oriented “keep it in the ground” movement would have us believe.

Questions? Let me know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

 

 

 

Is West Virginia Prioritizing The Past Over The Future?

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West Virginia Governor Jim Justice made one of the most curious gubernatorial moves in recent years recently, when he vetoed a bill that would have directed money to plug the Mountain State’s approximately 4,000 abandoned gas wells.

The bill, which had strong bipartisan support, would have decreased the State’s severance tax on low producing wells and directed other monies to a fund for the plugging of the abandoned ones.

To show how strong support was for the legislation, the House passed the bill 89-11 and the Senate 33-1. At a time when different political camps have difficulty agreeing on anything, the bill was supported by the oil and gas industry, landowners, the West Virginia Farm Bureau, and the environmental community. That kind of agreement from notoriously warring factions is almost unheard of.

Given that level and breadth of support, why did Governor Justice veto the bill? In his veto letter, the Governor objected to the tax rate cut on the low-producing wells and stated that the money to plug the abandoned wells should come from West Virginia’s General Fund. That seems a curious position given the positive environmental goal and the amount of public support.

Some see a nefarious purpose behind the Governor’s move. The “Marcellus Drilling News” suggested that the Governor vetoed the bill as a payoff to his supporters in the coal industry, specifically big coal mine operator Robert Murray. Indeed, last week the Governor signed a bill lowering the tax rate on steam coal used in power plants, but then turned around and rejected a cut in the gas tax rate payable by low producing wells and raising other funds to help clean up West Virginia.

It’s not a pretty picture. At best, the Governor committed political malpractice by blindsiding nearly everyone in the State. At worst, the Governor made a terrible choice to reward certain large coal operators at the expense of the citizens of West Virginia.

This all comes at a time when West Virginia is about to receive a massive $2.5 billion investment in an ethane cracker plant to support the gas industry. How Governor Justice explains his veto to the industry that is plowing money and resources into his economically depressed State will be interesting to watch in the weeks to come.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

Pre-Election Update

Marcellus Shale UpdateSeptember 11, 2018 (8)

Just a day before one of the most consequential elections in a generation, there are fewer major races and ballot initiatives pertaining to shale and hydraulic fracturing than in recent years.

Here in Pennsylvania, Democratic Governor Tom Wolf is cruising to reelection.  The most recent polls have him up double digits.  In the 2014 gubernatorial election, then little-known State Treasurer Tom Wolf shot to prominence by running ads focusing on Pennsylvania’s lack of a mineral extraction tax (while ignoring the local impact fee structure) and positioning himself as a foe of the gas industry.  In return, the industry has matched that opposition, and so far has beaten back all attempts to enact an extraction tax, in addition to the local impact fee.

Effective Tuesday, it appears both sides will have four more years to work together and try to figure this out, or not to work together and continue to serve no one’s interest.  They came very close to a resolution in 2017 during the eternal budget negotiations of that year but were ultimately not successful.  Now with Wolf freed from reelection constraints, expect the extraction tax to come back with a vengeance.  Once again, we shall see if the industry considers its most important legislative priority in Pennsylvania to oppose the tax, or whether it decides there are other issues in which it can deal with the Governor that will work better for the industry, the Governor and all Pennsylvanians.

Just north, New York Governor Andrew Cuomo also is way ahead in his reelection bid.  Cuomo, who banned hydraulic fracturing by gubernatorial edict, can rely on the immense power of the downstate environmental lobby without worrying about its effect on the southern tier, where all the gas is and where struggling family farms also are.  However, if there is another severe winter, the failure of Governor Cuomo to address the pipeline issue may cause him trouble.  In order to grow, New York needs gas.  Cuomo has made that very difficult, if not impossible.

He has wanted it both ways.  He can play to his environmental base without having to worry about the economic effect to the State as a whole.  That will cease soon.  As the State, and especially New York City, try to keep growing, they’ll need power.  They’ve closed their nuclear reactors, the hydro from Quebec has not been sufficient, and they’re ideologically opposed to coal.  What’s left?  There is no real plan for renewables and how they’d power New York’s economy.  Could it be that statewide groups like “Chefs Against Fracking” may get their wish, and have to live with the consequences?

The most important ballot initiative is in Colorado.  Proposition 112 would mandate a state setback of 2,500 feet on any drilling operations from most inhabited buildings.  It is five times larger than previous and from the standard nearly everywhere else in the country.  Even in rural areas, plotting 2,500 feet setbacks from any inhabited building would make it very difficult to engage in any drilling activities.

As usual, the industry has spoken with many voices.  Just last week, an internal paper was leaked suggesting the increased setback actually would have little impact on the gas and oil that could be extracted in Colorado.  That was heatedly rebutted with another study – again “leaked” to the press – which stated the original paper was misrepresented.

Despite almost no support from the political establishment on both sides of the aisle, Proposition 112 is leading coming up to election day.  If it passes, expect similar pressure in other states, even in ones with entirely different geography.  Yet, some of the companies, including ones headquartered in Colorado, have been slow to make their case.  This is no surprise given the history of energy company public relations and the industry’s lack of understanding of where its long-term damage may be coming from.

Of course, the major event will be what happens to the US House and Senate.  If we have divided government once again, it will fall to both private industry and local governments to chart the path forward.  For the good of the economic, ecologic, and security health of the country, let’s hope they’re up to the job.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

Marcellus Shale Update – 2.5.2018

People involved in the gas industry often rail against the media for their biased reporting.  Here in Philadelphia, we often feel the same way about how our sports fans are portrayed.  A great example is happening now if you check any of the media reports on the celebrations after last night’s Super Bowl.

I’m in my office in Center City right now. The City is fine. There were a few people who got out of hand, one car got overturned, a couple of hotel awnings got damaged, a Macy’s store window was smashed and some looting took place, but nothing major. As usual when it comes to stories of Philly and our fans, the media loves to blow it up way beyond what actually happened. Click here a more accurate story.

To the people of Boston, you played great and should be proud of your team.  Now you can regroup and try to figure out how you’re going to get the money to pay the Russians for your natural gas.

Questions? Let Dan know.

Marcellus Shale Update – 1.30.2018

Please excuse the rapid fire emails this week, but the circumstances are so extraordinary they need to be stated:

Ten years after the start of the shale revolution, the United States reached the height of absurdity.  A tanker named the Gaselys docked in Boston Harbor this weekend carrying natural gas.  New England needs this gas because it refuses to allow the buildout of our interstate natural gas pipeline system.  The Gaselys carried liquefied natural gas from – Russia.

You read that correctly.  Despite being just a few hours away from the most prolific natural gas fields in the world in Northeastern Pennsylvania, New England needs to obtain natural gas shipped on the high seas from gas wells in Russia.

Absolutely everything about this picture is wrong.  The gas could have been produced in Pennsylvania under American environmental regulations overseen by the Pennsylvania Department of Environmental Protection.  Instead it was produced in the Arctic eco-system overseen by the Russians.

The gas could have been transported a few hundred miles along newly built gas pipelines that are extraordinarily safe (though not 100%, nothing is).  Instead, the gas was shipped thousands of miles over the ocean in tankers of unknown quality and safety.

New England residents could have developed a secure, domestic supply of natural gas at affordable prices.  Instead, New England has a completely unreliable supply of natural gas at possibly the highest prices in the world.  It is astounding that any business would even consider locating in New England.   Boston made the cut of the final 20 cities competing for Amazon’s new headquarters.  How Amazon seriously could consider setting up operations there is beyond me.

Finally, the money used to purchase the gas could have gone to American companies who employ American workers and pay royalties to American landowners.  Instead, the money went to – Vladimir Putin.  And it’s not a one-time thing.  There will be other Russian gas shipments to Boston in the upcoming weeks.

The reason for all of this, of course, is that the shortsighted politicians in New York and New England refuse to allow construction of the pipelines needed to move the gas from the Marcellus Region to New England.  These politicians claim they are preserving the environment and combatting climate change.  They are doing the opposite.

Most of the power plants in New England can use either oil or natural gas.  Usually the price of natural gas makes it the preferred fuel.  With the price spikes affecting New England this winter, those plants have switched to oil, a much dirtier burning fuel.

In addition, New England politicians and “environmentalists” applauded as  New England’s nuclear power plants shut down.  The Pilgrim Nuclear Plant in Massachusetts is the only one left.  It will close by June 2019.  No one knows how that power supply (about 4.1% of Massachusetts’s total) will be made up.  In 2014, Vermonters cheered when the Yankee Nuclear Plant closed.  “Enviros” assured everyone that the balance would be offset from cleaner renewables.  No such luck.  After years of decline, New England’s CO2 emissions rose 5%.

There is no delicate way to put this.  The actions of the “environmental community” relating to natural gas are making our world, and our children’s world, less safe, less secure and less environmentally friendly.

If these “environmentalists” have an honest plan to power America’s needs, please show it to us.  Do we really need to import Russian gas before they present us with a real plan to run our nation in 2018?  How about even by 2038?  Anyone who loves the environment knows there are trade-offs.  Which ones would our “environmentalists” make?

I know these posts are read in the United States Senate, so I will ask the Senators who receive them to forward this to Massachusetts Senators Warren and Markey with one question.  What are you trying to accomplish?

Energy is not a play toy.  We’re not in a university classroom where you can pontificate with no real world consequences.  This IS the real world.

Your constituents’ money is going to Russia.  Your CO2 emissions are rising.  Your oceans and bays are filling with gas tankers.  Your state and region are becoming less competitive.  As American dollars flow into Vladimir Putin’s pockets, please help us understand what you are doing.

Questions? Let Dan know.